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US South Wood Fuel Price Trends and Predictions

US South Wood Fuel Price Trends and Predictions

Since peaking in the 2nd Quarter of 2014, US South delivered prices for wood fuel have experienced a slight decline, though they are still holding at a nominal price level above prices observed during 2006-2013 (Figure 1). Over the duration of this time period, three interesting trends have occurred.

Wood_fuel_2015_1

2007-Q1 to 2009-Q1

As the US entered the recession, wood fuel supplies began to dwindle as the output of bark and other residue from lumber producers declined in response to reduced sawmill operations (Figure 2 – Wood Fuel Supply Index = 91). At the same time, real prices for natural gas and electricity were high, averaging $8.04 and $18.58 per MMBtu[1], respectively. As supply was dwindling and alternative fuel sources were expensive, demand for wood fuel was increasing (Figure 1 – Wood Fuel Demand Index = 115). As a result, real delivered wood fuel prices increased to a peak of $2.19 per MMBtu by the 1st Quarter of 2009.

Wood_Fuel_2015_2

2009-Q2 to 2013-Q4

After the recession, supply was at its lowest (Index = 79) and thanks to fracking, natural gas prices plummeted to average $4.31 per MMBtu. Electricity followed suit, decreasing to $17.88 per MMBtu. As these alternatives became cheaper, demand for wood fuel waned by an average of 10% (Index change of 115 to 104). In addition, as sawmill residual chip supply declined, mills were forced to purchase and chip more pulpwood on site. The debarking of this pulpwood provided more boiler fuel supply internally and required mills to rely less on the open market. As a result, wood fuel prices declined from the 2nd Quarter of 2009 peak of $2.19 per MMBtu to a trough of $1.90 per MMBtu in the 3rd Quarter of 2012.

2014-Q1 to 2015-Q1

Since the low in 2012, wood fuel prices steadily increased, peaking in the 2nd Quarter of 2014 at $2.04 per MMBtu. Over this period demand gained back its 10% decline. Supply also increased by an average of 10% (Index change of 79 to 87).

Interestingly and almost perfectly synced, the price trend for natural gas mimicked the price trend of wood fuel. Natural gas prices increased from a low of $2.81 per MMBtu in the 2nd Quarter of 2012 to a peak of $5.32 per MMBtu in the 1st Quarter of 2014; one quarter earlier than wood fuel’s peak price. Since this time, prices have begun to trend down again, averaging $4.04 per MMBtu in January and February of this year. Wood fuel prices appear to be following suit, declining to average $2.03 per MMBtu for the 1st Quarter of 2015.

The Rest of 2015

It’s difficult to predict how prices will play out for the remainder of 2015. However, the supply side could potentially decline. As the construction and housing markets are showing signs of weakness and lumber prices are dropping, it is likely that sawmills will begin reducing production. This will also result in less residual chips in the market and again place more pressure on mills buying pulpwood. As a result, internal wood fuel supply will increase and cause demand for open-market wood fuel to decline.

Natural gas prices are predicted to decline through the spring and then increase slightly in the last half of the year. However, prices are still expected to be at a level lower than 2014. Forest2Market expects that lackluster price movement and decreased demand for natural gas will trump any decline in wood fuel supply. Expect wood fuel prices to decline and finish the year close to $2.30 per MMBtu nominally ($2.00 per MMBtu real).


[1] MMBtu = million British Thermal Unit. A Btu is the amount of heat required to raise the temperature of one pound of water (at or near 39.2 degrees Fahrenheit) by one degree Fahrenheit. One Btu is equal to about 252 small calories or 1055.06 joules.

US South Delivered Price Benchmark